Is Single-Vendor Sourcing Still the Way to Go? Assessing Vendor Risk
- July 21st, 2015
- By: Scott Robinson
Single-Vendor Sourcing has been a strategic go-to for many years, offering companies stronger collaborative relationships, easier relationship management, stronger supplier response and greater cooperation in production/logistics synchronization and sharing of data.
Globalization, for instance, may increase the risk brought on by a single-source strategy, he pointed out: single-vendor sources are often foreign, and as such can introduce intellectual property risks, financial risk from foreign exchange fluctuations, and political instability – risks that are all mitigated by a multi-vendor sourcing approach.
Some companies, like Pricewaterhouse Cooper, eschew single-vendor sourcing altogether, implying that a one-size-fits-all strategy may not exist, and that there are scenarios where vendor sourcing is an open question.
Nelson suggested that a strong discriminator for choosing between single- and multi-vendor sourcing may be the degree of dependency between partners. He described “lopsided dependency,” in which the relationship is not a symmetrical one: both sides will tend not to respond consistently with behaviors that are mutually beneficial, because one partner is far more powerful than the other and has far less at stake in the relationship (Walmart is a classic example).
When the partnership is lopsided in favor of the supplier, the buying partner must live with it when capacity shifts result in reducing the buyer in priority. When the partnership is lopsided in favor of the buyer, demand shifts can leave the supplier unable to respond quickly enough, increasing financial pressure and threatening stability.
Both of these scenarios are mitigated by a multi-vendor sourcing strategy, Nelson concluded. Where a partnership is “lopsided,” multi-sourcing is safer all around.
When dependency is mutual, however, and both partners consider the relationship of high importance, the supplier is more responsive and flexible when demand changes, and both sides are motivated to keep costs low and quality high. In this scenario, single-vendor sourcing makes more sense.